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Investors’ Corner (SMRT, Viz Branz, OCBC, UE E&C)
Investors' Corner | 07 December 2012
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By: Nicholas Tan
Articles (71) Profile

Price – $1.70
Target – $1.37

Grazing the headlines recently were reports on SMRT’s mainland-Chinese bus drivers’ protest on an alleged pay dispute. Though the news itself had more political ramifications than impact to company fundamentals, it serves as an alert and cannot be ignored, as public transport operators start to feel the pressure from the Bus Services Enhancement Programme rollout that has exacerbated the scarcity of available bus drivers. In our view, the implications of such unhappiness could surface more complex problems for the company. SMRT’s CEO Desmond Kuek admitted in a Straits Times report to ‘deep-seated issues’ within the firm’s management. We feel such comments from the top executive in SMRT should not just be brushed aside and questions will undoubtedly pop-up as to how far these ‘deep-seated issues’ run within the company, at what cost to address it and how long it would take to rectify. We have a negative view on SMRT, and recent events – reduction in dividends, a challenging local land transport outlook, recognition of ‘deep seated issues’ which could impinge on profitability – merely serve to reinforce this case. Maintain SELL. – Maybank Kim Eng (4 Dec)

Viz Branz
Price – $0.69
Target – $0.74

Viz Branz (VB) announced on Friday that former CEO and top shareholder Chng Khoon Pheng has unreservedly withdrew his allegations of impropriety over a series of payments involving the company from the Commercial Affairs Department and will no longer pursue them further. The withdrawal of the complaint concludes another chapter of the feud between Chng and his son, VB’s current CEO. We deem this latest action as a positive event that coincides with the possibility of a general offer by Lam Soon Cannery, which now has an estimated 20.06%-stake in VB up from 19.8%-stake previously. All signs now point to an impending offer for VB from Lam Soon – public family dispute resolved; its current CEO’s stake reduced signalling intent to exit the business; and no dividend declared for FY12. We urge investors to be patient and not be disheartened about VB’s lack of progress relative to other consumer-related companies which saw share-price appreciation and reiterate our belief that a general offer is approaching. Maintain BUY. – OCBC Investment (4 Dec)

Oversea-Chinese Banking Corp
Price – $9.41
Target – $10.63

In the banking sector, system loan growth was strong in Oct-12 (up 1% m-o-m, 8.1% in 10M12) as demand for business loans returned after evaporating in Sep-12. DBU loans advanced 1.7% m-o-m and 14% in 10M12, on robust demand for housing and business loans. Monthly DBU business loans grew 1.2% m-o-m, led by loans to non-bank financial institutions, manufacturing and other businesses. However, the banking sector is still expected to experience loan growth deceleration in 2013 and we view that Oct-12 robust loan growth may not be sustainable, as it was largely led by non-bank financial institution lending. Loan growth is likely to fall within local banks’ range of mid to high single digits for FY12. Notably, banks are likely to face continued net interest margin compression from funding and pricing pressures. Valuations for OCBC are fair, backed by 3Q12 positive fee-income trends with risks in rising credit costs for the banking sector. Its sound M&A decisions could provide some catalyst. Maintain NEUTRAL. – CIMB (3 Dec)

Price – $0.64
Target – $0.68

Entering 2013, we expect the outlook for UE E&C to be mixed. Though the group has a strong order-book estimated at $400m and a good pipeline of residential projects, it also runs the risk of the government tightening the foreign labour supply thus increasing manpower costs due to its high dependency on foreign workers and a potential supply glut in the EC market which could lead to downward pressure on margins in FY13 to FY14. Media reports stated that the EC market could face a potential supply choke as the government intends to roll out a record number of EC sites. By end-2013, some 5,600 units are expected to come on stream. This translates into an annual average supply of 4,500 units compared to an average take-up of 3,300 units. In terms of pricing, the government may introduce measures to rein in the escalating EC prices. All in all, we downgrade to HOLD given the group’s limited upside and its recent share price movement to close to our target price. – OCBC Investment (3 Dec)

Well trained in aspects of finance and business, Nicholas oversees the finance and manufacturing sectors at Shares Investment.

Please click here for more information about this author.

Oversea-Chinese Banking Corp  10.850 -0.10 -0.91%   
Business: [FY18 Turnover] Global corporate/investment banking (35%), global consumer/private banking (34.8%), OCBC Wing Hang (11.5%), insurance (11%), global treasury & mkts (7.7%).

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